Pharmaceutical companies spend a substantial amount of money on sales & marketing (S&M). One recent article noted the top 10 pharma companies spent $98.3 billion on S&M in 20131. Internal pharma company commercial operations units (skill center functions that support and connect S&M) spend substantial time and resources along with their consulting company partners to measure the return on investment (ROI) and effectiveness of S&M spending. Likewise, academic marketing scholars have also focused a great deal of attention researching the life sciences (encompassing companies in pharmaceuticals, biotechnology, and medical devices).
An overview article breaks down previous research efforts by marketing scholars in the life sciences into three categories: therapy creation, therapy launch, and therapy promotion.2 However, what is generally lacking in previous marketing research efforts is the importance and impact of sales and marketing capabilities as a potential driver of business performance. Recent research completed outside the life sciences area has made some initial progress to offer insights into this under-explored topic, though no studies on the life sciences.3,4 This research gap is what makes a recently published paper of interest to biopharmaceutical executives.
What about measuring the impact of changes in pharmaceutical commercial operations capabilities on business performance?5 The researchers in this recent article developed firm-level US commercial operations capability attributes using qualitative metrics on innovation and execution (the latter defined as alignment and responsiveness) and analyzed their effect on US business performance using revenue per sales rep. The research leveraged internal self-reported sales operations spending data from a broad spectrum and representative set of 26 biopharmaceutical companies to TGaS Advisors over the period 2005 to 2011. Qualitative capability metrics were gathered using a validated survey instrument from pharma industry-experienced TGaS Advisors account executives. Additional control variable measures were collected by the researchers per the theoretically-supported model design. A traditional linear mixed model regression estimation with adjustments made to account for typical statistical issues was applied to test all hypotheses.
The intuition behind the hypotheses on whether improvements in commercial operations capability attributes affect business performance is straightforward. The effectiveness of greater spending on various sales and marketing channels on business performance is made weaker if there lack the necessary underlying capability attributes in commercial operations to support such resource investment. Further, intuition suggests that innovation and execution capabilities synergistically operate to affect business performance. Stand-alone improvements in just one capability will not affect business performance. The researchers not only found exactly what intuition would have predicted, but also and more importantly developed empirical estimates to show the strength of such effects on business performance relative to other factors. Improving commercial operations capabilities in innovation and execution has a substantial impact on business performance.
Further, the researchers suggested an interesting extension of their analysis - to explore the impact of capability resource investment-mix allocation on business performance. Traditional marketing-mix analyzes how varying proportions invested across sales and marketing channels impact business performance at the brand level. What about analyzing varying resource investment-mix allocation say for major buckets of commercial operations functional capabilities on overall company business performance? Functional breakdowns can include major areas such as marketing research, marketing analytics, sales analytics, sales force strategy, sales operations, forecasting, pricing, managed markets, CRM, etc. Prior research completed provides empirical support for this suggestion.6
What then are some key take-away messages from this research for biopharmaceutical commercial operations executives,5 especially in the context of an external environment that is increasingly becoming more complex with substantial challenges and opportunities:7
- Focusing on how much to spend on various sales and marketing channels is not sufficient to realize maximum returns.
- Traditional marketing-mix exercises alone only partially address the objective of reaching full ROI from sales and marketing spending.
- Developing stronger commercial operations capabilities enhance sales and marketing spending effectiveness.
- Creating stronger commercial operations innovation and execution capabilities by themselves generate significant improvements in business performance.
- Senior executives must develop and foster commercial organizations that continually generate innovation and execution capabilities based on having the right culture, people, structure, and processes/systems in order to achieve maximum effectiveness.
1. Swanson A. Big pharmaceutical companies are spending far more on marketing than research. The Washington Post, published online 11 February 2015, available at https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ (accessed 2 August 2016).
2. Stremersch S and Van Dyck W. Marketing of the life sciences: a new framework and research agenda for a nascent field. Journal of Marketing 2009; 73: 4-30.
3. Morgan N, Slotegraaf R and Vorhies D. Linking marketing capabilities with profit growth. International Journal of Research in Marketing 2009; 26: 284-293.
4. Krasnikov A and Jayachandran S. The relative impacts of marketing, research-and-development, and operations capabilities on firm performance. Journal of Marketing 2008; 72: 1-11.
5. Chressanthis G, Eisenstein E, Barbro P. What makes more, better? An exploratory study on the effects of firm-level commercial operations attributes on pharmaceutical business performance. Journal of Medical Marketing 2015; 15:10-25, published online 29 February 2016, doi:10.1117/1745790416634980.
6. Mantrala M, Sinha P and Zoltners A. Impact of resource allocation rules on marketing investment-level decisions and profitability. Journal of Marketing Research 1992; 29:162-175.
7. IMS Institute for Healthcare Informatics. Medicine use and spending in the U.S.: a review of 2015 and outlook to 2020. Parsippany, NJ: April 2016.